Fiscal Crisis Will Cut $30 Billion from State & Local IT Spending Over Next Five Years

The current fiscal crisis in the states and localities will trim $30 billion in cumulative IT spending over the next five years, according to a recent report by INPUT. This will come as states and localities try to come up with approximately $250 billion in new revenue and spending cuts to align their budgets to the levels that preceded the real estate boom of 2003-07. The compound annual growth rate (CAGR) for the state and local IT market has been reduced to 4.3% from the 6.4% announced by INPUT in its June 2008 forecast.

“We’ve seen so many projects held back in this quarter that we wanted to provide some concrete estimates for companies looking at 2009,” said Chris Dixon, manager, state and local industry analysis at INPUT. “State and local revenue projections from last spring just haven’t held up. Right now, this market needs federal fiscal relief for state Medicaid and unemployment funds to break the cycle of reactive policymaking. Then it needs the credit markets to loosen up so states and localities can sell bonds to fund capital projects, including major IT systems.”

A total of 37 states plus the District of Columbia are facing a collective mid-fiscal-year shortfall of $31.2 billion. However, the 10 states with individual deficits of approximately $1.0 billion or more will likely account for $22.5 billion (72%) of that total. California alone will likely account for more than one-quarter of the national total. An August/September survey of 154 city and county IT officials conducted by Public Technology Institute (PTI) and INPUT found that only 13.7% of respondents expect their overall IT budget to increase over the next two years. Nearly half (49%) expect their budgets to hold steady, and 37.3% expect them to decrease.

“Fortunately, states and localities have a lot of options available to them when it comes to increasing revenues and cutting spending,” added Dixon. “But, it takes time to muster the political will to close the gaps. Fortunately, IT is part of the solution and will start to regain traction in 2010-11 as state and local officials get acclimated to the new conditions. Elected officials will start to look for radical operational consolidation, which will lead them back to IT.”

These findings and others were released in an INPUT Industry Insight Report, “Fiscal Crisis Will Trim $30 Billion from State & Local IT Spending Over Next Five Years. ” More details are available at http://www.input.com/corp/library/detail.cfm?itemid=7938&cmp=OTC-slfincrisisii010709.